Thursday, July 31, 2008

Canadian GDP FALLS - Ahh ... the leadership of Stephen Harper!

The Canadian economy shrank in May, shocking economists who had been expecting at least modest growth and confirming that the commodities market is not enough to keep Canada humming when the U.S. economy is struggling. The question is: Can the stock market continue to lead the world when the economy is simply following?

In May, GDP fell 0.1 per cent from the previous month, versus a consensus expectation from economists for growth of 0.2 per cent – establishing what looks like an unsettling picture of, at best, an economy that is floating just inches above a technical recession.

“The setback was the fourth decline in the past six months, and leaves output up a meagre 0.6 per cent in the past year, far below the economy's 10-year trend of 3 per cent,” said Douglas Porter, deputy chief economist at BMO Nesbitt Burns, in a note.

Of all things, energy production was the biggest source of the setback in May, due to a drop in natural gas extraction. However, mining activity, financial activity and auto manufacturing also fell during the month.

“If we assume a flat June reading for GDP, the second quarter might only be as high as 0.5 per cent. That suggests the Bank of Canada will not really be in a position to raise rates until well into 2009,” said Charmaine Buskas, senior economics strategist at TD Securities, in a note.The Globe & Mail